When Good Economic News Becomes Boring
The August 2018 Jobs Report
The Bureau of Labor Statistics (BLS) released the August national jobs statistics this morning, continuing a long trend in positive reports. Unemployment remains low, job growth remains strong, and secondary labor market measures continue to show improvement. The good economic news has almost become boring, but a lack of excitement isn’t bad. As problems go, boring economic news is probably one of the best to have.
Employers added 201,000 new jobs in August, slightly exceeding economists’ expectations. Employment growth for June and July was revised downward by a total of 50,000 jobs, but June was a surprising outlier in job creation and the revision brings it more in line with the average job growth each month.
Revisions of this size are not unusual—last month’s employment estimates for May and June were revised upward by 59,000 total jobs (and the March and April job growth estimates were revised upward by 37,000 before that). This is just the nature of working with the most recent data, which has not had all of the seasonal adjustments added in yet.
The number of people actively looking for work (those who are ‘officially’ unemployed) fell by 46,000 while the number of people who were working part-time for economic reasons (like an inability to find full-time work, seasonal declines in demand, or unfavorable business conditions) fell by 188,000. The headline unemployment rate (U-3) remained constant at 3.9 percent.
Interestingly, the number of people who wanted a job but weren’t actively seeking employment actually rose by 226,000. This led the comprehensive jobless rate to increase slightly to 7.0 percent
Perhaps the best news of this jobs report is that the duration of unemployment declined for all of the longer-term categories. Unemployment for those out of work for 5 to 14 works dropped by 100,000, and by 48,000 and 103,000 for those unemployed 15 to 26 weeks or 27 or more weeks respectively. The unemployment rate held steady despite these declines because of a 117,000 increase in short term (fewer than 5 weeks) unemployment and a substantial decrease in labor force participation (469,000, perhaps due to a surge in baby boomer retirements).
There’s still slack in the labor market, though: last month 4.38 million people wanted a full time job, but were working part-time because of economic reasons. Another 5.39 million people say they want work, even though they’re not actively seeking employment. However, this is an industry-specific issue. Jobs like nursing and truck driving are seeing a low job applicants-to-available positions ratio, and wage growth is correspondingly higher than in administrative assistant and warehouse worker positions where the ratio is less balanced.
The strength of the current job market offers hope for those who are dissatisfied with their current employment situation because it’s essentially a “sellers’ market” for people who are willing to pursue new employment opportunities. This is especially true for those professions where there’s a low ratio of job applicants for each job opening. Overall, the most recent Job Openings and Labor Turnover Survey (JOLTS) data release shows that the total number of available positions (6.7 million) continues to exceed the number of people counted as ‘officially’ unemployed (6.2 million).
Annual wage growth rose slightly last month to 2.9 percent, while weekly earnings grew 3.2 percent over the previous year (compared to last month’s 2.7 and 3.0 percent). The lack of strong wage growth, given the low headline unemployment rate, has puzzled many economists. There are various explanations for this, and each might be contributing in its own way:
- Inflation is not substantially eroding wages, averaging only 2.6 percent annually over the last 30 years. The previous 30 year period, in contrast, experienced higher inflation, leading employers to raise wages or risk losing workers to businesses which had.
- Energy prices, which previously had been a driving factor of inflation, especially as the economy grew and demand for energy rose, are more subdued since fracking technology vastly increased access to known oil and gas resources in the early 2010s.
- Periods of higher wage growth were generally concurrent with periods of stronger productivity growth. Contemporary average productivity growth is substantially lower.
Furthermore, just because wages are not substantially growing does not mean that compensation is not increasing. There’s a large body of reporting that suggest employers are offering increased monetary and non-monetary employment benefits instead of directly paying workers more. As employees desire better work-life balance, employers are also reporting that work flexibility and “quality of life” benefits are highly sought after.
- A national survey of employers and employees conducted by The Harris Poll for CareerBuilder found that companies were offering quality of life accommodations to attract employees, including casual dress codes, flexible work schedule, ability to work remotely, extra paid time off, free lunches, gym memberships, and employee discounts.
- Dog-friendly workplaces have become more popular and some employers are going so far as to pay for pet insurance, “doggie day-care”, and “pawternity leave” to attract the top talent for their business.
- A few companies are starting to offer programs to help workers pay off student debt.
- A number of states—most recently Massachusetts—have mandated that employers offer paid sick leave and paid family medical leave. While these employment benefits are often favored by employees, they do represent a cost for employers, meaning that they would tend to restrain wage growth that might otherwise occur. As these policies are adopted by other companies and legislated by other states, they will likely continue to transfer compensation growth from wages to benefits.
None of these employment benefits would count towards ‘wage growth,’ although they are certainly all part of an employee’s overall compensation. A recent White House report illustrated this same point.
Quick Statistics from the August BLS Jobs Report
Headline Employment Statistics
- Total nonfarm payroll employment increased by 201,000 jobs.
- The labor force participation rate fell by 0.2 percentage points to 62.7 percent.
- The headline unemployment rate (U-3) held steady at 3.9 percent.
- The mid- to long-term unemployment rate (15 weeks or longer; U-1) fell slightly to 1.4 percent.
- The discouraged worker unemployment rate (U-4) fell by 0.1 percentage points to 4.1 percent.
- The comprehensive jobless rate (U-5b) increased slightly to 7.0 percent.
Deeper Unemployment Statistics
- Long-term unemployed workers (27 weeks or longer) fell by 103,000 to 1,332,000; the proportion of long-term unemployed workers fell slightly to 21.5 percent of those who are unemployed
- The number of people who wanted to work full time, but who could only find part-time work for economic reasons, fell by 188,000 to 4,379,000, which was 16.7 percent of all part-time workers.
- Average hourly earnings rose by 2.9 percent over the previous 12 months.
- Average weekly earnings rose by 3.2 percent over the previous 12 months.
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